Slump in Ordering

Replacement of old units and new environment norms to revive BTG market

The past few years have been particularly tough for the Indian equipment industry. As per industry estimates, boiler, turbine, generator (BTG) equipment orders for projects aggregating 6.36 GW were placed in 2017-18, as compared to 10.26 GW in 2015-16. While the central and state gencos placed a few orders, the private sector failed to finalise any order owing to issues such as lack of fuel and power offtake arrangements facing the sector. On the bright side, a huge opportunity is expected to come up in the thermal power segment with the replacement of old and inefficient plants and installation of emission control systems. This will lift the industry’s prospects in the next few years. Meanwhile, the Indian electrical equipment industry posted a seven-year high growth of 12.8 per cent in 2017-18, according to data compiled by the Indian Electrical and Electronics Manufacturers’ Association (IEEMA). This has been driven by the government’s increased spending on rural and household electrification schemes and programmes aimed at transmission system strengthening.

BTG industry trends

The domestic BTG manufacturing capacity is more than 30 GW, with Bharat Heavy Electricals Limited (BHEL) accounting for around 20 GW. In 2017-18, BHEL received orders worth Rs 333.42 billion from the power sector as against Rs 385.29 billion in 2016-17, marking a decline of 13.46 per cent.

The other key players in the BTG market are domestic joint ventures set up in the past decade. These include L&T-MHPS Boilers Private Limited (with a boiler manufacturing capacity of 4 GW and turbine generator capacity of 4 GW), Alstom-Bharat Forge (4 GW of turbine generators), Toshiba-JSW (3 GW of turbine generators), Doosan Power Systems India (2.2 GW of boilers) and Thermax-Babcock & Wilcox Energy Solutions (3 GW of boilers).

In the past year, ordering activity remained weak, primarily due to delays in obtaining clearances and the fast depleting project pipeline. Orders continued to come from central and state sector companies. Technology-wise, the majority of the orders were for supercritical and ultra supercritical technologies. The replacement drive in the thermal power segment is expected to create new demand for BTG equipment. The Central Electricity Authority (CEA) has identified several old and inefficient plants that are over 25 years old for replacement. Developers are thus required to modify the operations of BTGs by scrapping the old plants to set up new supercritical plants with higher capacity. The total quantum of old thermal capacity identified by the CEA is around 33 GW, of which around 7 GW can be scrapped and replaced by around 18 GW of supercritical units.

As per industry estimates, of the 51 GW of capacity (with a unit size of over 500 MW) installed before 2003, around 35 GW (mainly plants that are over 25 years old) needs to be scrapped. The scrapped plants will be replaced over the next four to five years by those with 50 per cent higher capacity, resulting in additional capacity of about 50 GW. Meanwhile, the Ministry of Environment, Forest and Climate Change notified tightened emission norms in December 2015, thus opening up significant growth opportunities for equipment providers in the emissions control market. In order to meet the new standards, emission control systems including flue gas desulphurisation (FGD) systems and electrostatic precipitators (ESPs) need to be installed and retrofitted at power plants. According to CEA estimates, about 72 GW (36.5 per cent) of the total coal-based capacity (197 GW) is non-compliant with the new particulate matter norms and requires retrofitting or upgradation of ESPs. To this end, ESPs are planned to be upgraded across 231 units aggregating 66 GW of capacity. Meanwhile, FGD systems are planned to be installed in plants aggregating 160 GW.

Electrical equipment industry trends

According to IEEMA data, the equipment industry witnessed a significant growth of 25 per cent and 14 per cent during the third and fourth quarters of 2017-18 respectively. The electrical equipment industry’s growth of 12.8 per cent during the year was driven by growth in segments like rotating machines (12 per cent), HT motors (18 per cent), cables (20 per cent) and meters (28 per cent). The industry’s record performance was attributed to government schemes like the Deendayal Upadhyaya Gram Jyoti Yojana, Integrated Power Development Scheme, Saubhagya and the smart meter procurement drive. However, the capacity utilisation level in the industry still stands at 60-70 per cent. Also, the industry continues to be plagued by higher imports. A surge in the prices of raw materials including major metals and insulating materials has also adversely affected the cash flow of manufacturers and delivery.

To conclude, the main plant equipment market for TPPs is facing headwinds with the drying up of the project pipeline and growing emphasis on renewable energy sources. However, the demand for emission control equipment as well as significant investments planned in transmission and distribution under various government initiatives is likely to improve the equipment industry’s prospects.